Tuesday, 13 December 2011

The art of ERP software selection

By Zeeshan Hasan (From the October 2011 edition of CIO magazine, Bangladesh edition.)

One
of the natural difficulties of a company which has quickly grown from a
small size is that it is likely to have its accounting software
centralized in a single head office with no distributed accounting or
management information system. This sort of legacy accounting system
becomes harder and harder to manage as the number of purchase,
production and sales locations increases, simply due to the difficulty
and delay of manually moving information from various locations to the
head office and then processing it in the centralized accounting system.
Furthermore, in a situation where purchase, sales, accounts and
manufacturing all maintain separate records systems which are not
integrated, any error anywhere creates a discrepancy which is difficult
to locate and correct. In this respect, rapidly growing Bangladeshi
businesses are now experiencing the same problems that companies in the
West have been dealing with since the 1980s. The experience of the MIS
and management disciplines in developed countries fortunately reveals
the solution to the above problem in the form of Enterprise Resource
Planning (ERP) software.Almost
everyone has heard of ERP software, but not many are clear about what
it does. Primarily, ERP systems integrate all corporate operations and
data, including purchase, inventory, manufacturing, sales, accounts,
costing and human resources. Modern ERP systems are generally web-based
to enable easy access for from multiple locations. Since all information
is stored in a central database, everyone always sees the same data and
there is no disagreement between figures used by different departments.Due
to the communication difficulties inherent in a big organization, large
and even medium sized companies will see the need for ERP software
sooner or later. However, this creates a difficult decision; which ERP
system is best? The choice is quite bewildering. On the high end of the
market there are the established multinational ERP providers such as
SAP, Oracle and Microsoft, which have comprehensive functionality proven
over thousands of client installations. However, they come at a steep
price, invariably costing thousands of dollars per user in up-front
software licence costs, as well as hefty customization costs by foreign
experts who stay in five-star hotels. At the low end of the market there
are local Bangladeshi software companies offering much cheaper
solutions, usually costing in the region of tens of lakhs of Takas;
however, these can be a risky proposition, having usually been developed
for and deployed by only a handful of customers in a limited range of
industries. With all due respect to the Bangladeshi software industry,
these local solutions cannot really be considered to be proven,
general-purpose ERP software, since they simply haven’t been tested in
enough varied business contexts. Relying on an unproven, untested ERP
system is indeed dangerous, since once an ERP is implemented, every
department in a company is dependent on it; major bugs in the system
could throw the entire company into chaos.Obviously
both high-end and low-end ERP systems have major disadvantages in terms
of cost and risk respectively. Fortunately, a new alternative has
emerged as a mid-range compromise; namely open-source ERP software.
Open-source software such as the Firefox web browser, LibreOffice word
processor, spreadsheet and presentation suite, and the Linux operating
system are developed by international teams of programmers collaborating
on shared source code which is downloadable from the internet. The
successes of these open-source projects have proven over the last decade
that the open-source development process is capable of producing
high-quality software comparable to the best proprietary products. The
open-source software revolution is now beginning to penetrate the ERP
space as well.The
major open-source ERP systems such as Adempiere and Openbravo have a
simplified but comprehensive feature set comparable to the proprietary
ERP products, providing web-based integrated business software which can
be downloaded and used without any software license fee. However,
implementing ERP will never be free, regardless of the licence cost;
this is because each customer requires their ERP software to be
customized to their business needs. Therefore ERP software providers
need to charge money for software customization, regardless of the
license cost of the software. Nonetheless, open-source ERP still can
save a lot of money, and can even compare to the low cost of locally
produced ERP companies if sufficient open-source ERP expertise is
available locally. Furthermore, open source solutions have a big
advantage in they have been implemented in hundreds of diverse
businesses around the world, and can truly claim to be proven, general
purpose business software that will work in any real business setting.Open
source ERP does not just differ from proprietary ERP in terms of
license fees; the common feature of all open-source software is that it
gives the customer more choice. For example, one can simply download and
use a community-supported open-source Linux operating system such as
Debian without paying anyone; or, if corporate support is desired, one
can choose to buy Red Hat Linux and pay the Red Hat company for the
desired services. Similarly, open-source ERP gives the user the choice
whether to go with a community-supported or corporate supported version.
A short history of a few of the major open-source ERPs will clarify
these choices.The
first fully functional open-source ERP product was Compiere ERP, which
was produced and supported by Compiere Incorporated in the USA in 2000.
However, it initially lacked a web user interface; hence the Compiere
open-source code was forked by the Openbravo company in Spain. The
Openbravo company added a web user interface and now markets the
resulting ERP product as the Openbravo ERP system. Compiere Inc. was
then acquired by Consona, a proprietary ERP company, resulting in large
portions of its code (including web user interface and manufacturing
module) no longer being fully open source and downloadable. This left
Openbravo as the remaining commercially supported open-source ERP
derived from Compiere. However, the user community of Compiere again
forked the code to create the Adempiere open-source ERP project, adding
their own community supported web user interface and other features. So
now there are two open-source Compiere derived products; the
corporate-supported Openbravo and the community-supported Adempiere.
Adempiere and Openbravo are both very similar, having been derived from
the original Compiere code; both are developed in Java and use
Compiere’s concept of a data dictionary which enables customization to
be done quickly with little programming and no bugs introduced by fresh
programming. Which
is better, a community-supported open-source project like Adempiere, or
a company-sponsored open-source product like Openbravo? There is not a
simple answer. Company-sponsored
ERPs have an clear element of leadership and accountability provided by
the sponsoring company; but there is a cost for this. The Openbravo
company does charge money in the form of annual per user support fees.
With company-sponsored open source ERP products, there is also always
the risk that the sponsoring company will be acquired by an entity not
interested in continuing open-source development, as happened to
Compiere. Community
sponsored projects like Adempiere may not have a single company making
decisions, which can result in lack of direction. Since there is no
single company backing the product, it could be difficult to find high
quality support and technical expertise for a community-supported
product; in fact, availability of support and expertise should always be
the deciding factor for any ERP implementation, as poor support will
invariably lead to problems . As opposed to the uncertainty over
support, there is the long-term guarantee that the ERP software will
always be free, as no one entity can claim ownership of it. Ultimately
the decision of whether to go for a proprietary ERP,
commercially-supported open-source ERP or community-supported open
source ERP is a judgement call that the customer has to make based on
their own IT department skills and availability of local support. A
table below summarizes some of the costs and benefits of each.

ERP System

Type

Includes web interface for purchase, inventory, sales and accounts?

Includes manufacturing?

Initial license cost + annual support cost

Oracle, SAP, Microsoft

Proprietary

Yes, at high cost

Yes, at high additional cost

$3000 to $6000 per named user initially + 15% to 20% per year

Openbravo

Commericially supported open-source

Yes, for 365 Euros per user per year

Yes, for 500 Euros per user per year

No initial license fee, 365 to 500 Euros per month per concurrent user

Adempiere

Community supported open-source

Yes

Yes

No initial license or annual support fees

Please
note that the above table only mentions license and support fees, not
customization fees. All ERP systems will require customization fees, and
the cost of customization is likely to be substantial for a large
organization, regardless of which ERP system is used. Customization cost
is likely to depend more on the complexity of the business processes
involved, as well as the skills and experience of the company providing
the ERP consulting and implementation services.In
spite of many challenges, Bangladesh has been growing. As a result, a
number of sectors have expanded rapidly in the last decade or two;
including telecoms, garments, textiles, food products, pharmaceuticals,
real estate, steel, cement, ceramics, etc. This has naturally created a
need for better management and financial control within many rapidly
growing companies. Increasing adoption of ERP systems is going to be
inevitable as we go forward; as that happens, more and more companies
will be faced with the choice of which ERP system to use. Hopefully this
article will give people some guidance when they come to that decision.